Carehome assets attract funds despite complexity of rules

A recent report by law firm CMS has revealed both the complexity and diversity of the care home markets across Europe and the UK. The report also highlights the growing demand for the sector both from the consumer perspective and from the point of view of investors.

“Over the next 50 years it looks like we’re going to have 50% of our population being supported by fewer numbers of working adults, so care homes are critical for our future,” said CMS partner Candice Blackwood.

Her colleague, partner Stefan Voss, said that in Germany the baby boomer generation is likely to retire over the next 10 to 15 years and until 2030 at least 200-250 care homes will have to be developed to maintain quality.

Nevertheless, strength of demand and stability of its income, which is effectively underwritten by the social security system, makes the sector an attractive investment.

However, the complexity of the regulations which apply to care homes can be a challenge for both investors and operators. “In germany in particular, we have a specific care home regulation in all 16 federal states that makes it quite different for investing in portfolios which cover properties which are located in more than one federal state. It is a very complex issue which needs to be observed by all investors,” Voss told Real Asset Insight’s Richard Betts.

Although, as Blackwood pointed out, the situation is not as complex in the UK, there are different regulators in England, Scotland and Wales which operate slightly varied regulations.

Funding is also diverse but ultimately, it is government backed, which is an attraction for investors. Similarly, the sector’s ESG characteristics are attractive because the healthcare sector “ticks all the boxes”, Blackwood explained. “It’s environmentally sustainable, it’s got regulatory governance so it’s a very important asset class on that front.”

The pandemic has placed a strain on operators and more consolidation can be expected in the market, Blackwood added. The covenant strength of the operators that investors partner with is critical, she said.

Click on the video above to watch the full interview or listen to the podcast below.